12:55 31 December 2016
OPINION: President Trump's economic policy
By Glen S. Fukushima
TOKYO, Dec. 31, Kyodo
When Donald Trump was elected president of the United States on Nov. 8, no one knew for certain what his economic policies would be.
First, Trump made numerous promises during the campaign, but it was unclear what his priorities would be and which of his campaign promises he would try to implement. Second, whatever he may want to do, he will be constrained by the Congress, Supreme Court, business community, public opinion, the World Trade Organization and foreign countries. Third, his economic policies will be shaped by his appointments to senior positions in his administration.
Considering Trump's campaign promises and his Cabinet appointments to date, we can assume he will put priority on reducing the role of government, deregulation, tax cuts, investing in infrastructure, imposing tariffs and renegotiating trade agreements.
The choice of Steve Mnuchin as secretary of the Treasury and Wilbur Ross as secretary of commerce reveals that Trump's economic policies will favor the wealthy. This is ironic, given that his election victory is largely based on his appeal to white men with lower levels of education, many of whom are labor union members who traditionally vote for Democratic candidates. This year, however, many of them voted for Trump because they believed he was more likely to bring jobs back to the United States than Hillary Clinton, who was seen as too close to the Wall Street establishment and unlikely to bring about change.
Soon after his nomination as secretary of the Treasury, Mnuchin stated that he intends to "strip back" parts of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted after the recession of 2008 to provide stricter regulation of financial institutions. This is an example of the kind of deregulation and reduction in the role of government that Trump, mainstream Republicans and the business community would welcome.
Trump proposes to simplify the tax code, with individuals being required to pay 12 percent, 25 percent, or 33 percent tax, depending on income. But the wealthiest (top 1 percent) will gain the most under this plan. Trump also wants to cut corporate taxes from 35 percent to 15 percent. Tax specialists have pointed out that this plan would reduce federal revenues by $9.5 trillion over the next five years and an additional $15 trillion the following decade.
Trump's infrastructure plan calls for $1 trillion investment over a 10-year period to rebuild highways, tunnels, bridges and airports. But it is unclear to what extent this would be funded by the government and to what extent by private funds. The potential negative impact of this plan on the federal budget deficit is causing many Republican fiscal conservatives to oppose such large-scale investments.
Trade and investment policy is where Trump's approach contrasts the most with that of mainstream Republicans. For instance, Trump has threatened to impose a 35 percent tariff on goods sold by U.S. companies that move jobs overseas and displace American workers. This has been opposed by Republican members of the Congress, who have traditionally supported free trade. Many of them are especially critical of "picking winners and losers" in the economy, which Trump was accused of doing when he recently announced that Carrier Corp. would keep roughly 1,000 jobs in Indiana rather than moving them to Mexico, thanks to $7 million in tax incentives provided by the state.
During the presidential campaign, Trump threatened to impose tariffs on imports to the United States from countries that he claimed were engaging in unfair trading practices or currency manipulation. On some occasions, he has said this should be 20 percent. Regarding China, he has used the figure of 45 percent. And in a recent speech, he said that because Japan imposes a 38.5 percent tariff on American beef imports, the United States should imposed the same level of tariffs on Japanese auto imports to the United States.
Throughout the campaign, Trump was critical of the North American Free Trade Agreement and the Trans-Pacific Partnership. He pledged to re-negotiate NAFTA and to withdraw from the TPP, claiming that both were "disastrous" trade agreements that benefited foreign countries and destroyed American jobs and companies. Trump has stated his preference for bilateral trade agreements, which he believes bring more benefits to the United States than multilateral trade agreements.
The job of re-negotiating NAFTA and negotiating new trade agreements will go to the U.S. Trade Representative, whom Trump has not yet named. Based on Trump's distrust of government officials and of most politicians, he will probably choose a business person he believes to be a "tough negotiator" -- a younger version of Carl Icahn, whom Trump has frequently praised.
With the exception of infrastructure investment, Trump's economic policies contrast markedly with those of Hillary Clinton. Trump's focus on tax cuts, deregulation and reducing the role of government is likely to increase inequality of income and wealth. And it is doubtful to what extent his trade and investment policies will bring manufacturing jobs back to the United States -- one of his top campaign promises. If Trump's promise to "Make America Great Again" is not realized over the next four years, he is certain to face tough challengers from both parties in the presidential election of 2020.
(Glen S. Fukushima is a Senior Fellow at the Center for American Progress. He was a senior official at the Office of the U.S. Trade Representative from 1985 to 1990.)